I want to highlight specific revisions in the proposed regulations, other than eligibility issues, that will directly impact contractors. On paper, the proposed revisions create a more flexible program. I suggest contractors take an active role in their state shaping the revised program.
The following are the revisions, other than those on DBE Certification, that may most significantly affect contractors:
-- For the first time a state DOT, or other recipient may seek a waiver authorizing it to operate a DBE program different than the one described in the regulations.
-- Prime contractors will be required to make prompt payment to their DBE subs within 10 days after being paid.
-- State DOTs and other recipients will be required to establish a diversification mechanism to discourage DBE concentration in specialty contracting fields.
-- Overall (annual) goals must be set in one of three ways, each attempting to compare the number of DBEs with the total number of DBEs and non-DBEs.
-- State DOTs and other recipients must meet as much of their overall goal as they can by outreach, technical assistance and other similar methods.
-- Any portion of the overall goal that cannot be met by outreach, etc., must be met either by DBE contract goals (the current system) or evaluation credits.
-- For evaluation credits, DBE primes would be given a 1%-10% price advantage; or, a non-DBE prime meeting a DBE contract goal will receive between 1%-10% price advantage over the low bidder who does not meet the DBE contract goal.
-- Recipients may determine good faith efforts based on submittals with the bid or submittals after the bid.
-- State DOTs may establish a reasonable price differential between DBE and non-DBE subcontractors for good faith efforts determinations. (e.g. a state DOT could establish in its bidding documents that prime contractors are not obligated to accept quotation from DBEs that are 1%-10% higher than the lowest non-DBE quote.)
-- The low bidder who does not meet the DBE goal, and if the state determines it has not made a good faith effort, must be given an opportunity for an administrative consideration.
-- Actual goal achievement will be reduced because any amount subcontracted by a DBE subr to a non-DBE will not count towards the DBE contract goal.
-- The value of materials purchased or equipment leased by a DBE sub from a non-DBE firm (other than the prime contractor or its affiliate) and used by the DBE in performance of its subcontract counts toward the DBE contract goal.
-- Decisions on commercially useful functions are subject to review by the operating administration (e.g. FHWA).
-- A DBE is presumed to have not performed a commercially useful function if it doesn't perform at least 30% of the total cost of its contract with its own forces.
-- Prime contractors may not terminate DBE subcontractors for convenience and perform the work with its own forces or subcontract to a non-DBE, absent prior written consent by the state DOT.
-- If a DBE is decertified after the prime executes a subcontract with the firm, then the prime may continue to use the firm and receive DBE credit, but the state DOT will not be able to count the portion of the work done by the DBE after being decertified towards its overall DBE goal.
Problems with DBE goals
I believe these proposed regulations will continue two basic problems: unrealistic goals; and the quota approach to meeting those goals. Establishing the overall DBE goals based on the number of DBE firms compared to the total of DBE and non-DBE firms, will lead to unregulated high goals. Second, if the state DOT gives a percentage price advantage to prime contractors who meet the DBE goals over the low bidder who does not, a defacto quota system will result and good faith efforts will be meaningless.
Fortunately, a state DOT or other recipient can request a program waiver authorizing it to operate a DBE program that achieves the objectives of U.S. DOT's regulations by means that differ from one or more of the requirements of the subparts on administrative requirements; and goals, good faith efforts, and counting.
A second fortunate aspect of the U.S. DOT proposed regulations is that the state DOT, or other recipient, must meet as much of the overall goal as it can by using outreach, technical assistance, and other methods to facilitate DBE participation. If the entire goals can be met by these methods, then there is no requirement to set contract DBE goals.
The proposed regulations present many opportunities for state DOTs and state contractors associations to craft a program that will meet U.S. DOT's stated purpose: "To assist the development of firms that can compete successfully in the marketplace outside the DBE program." If contractors remain on the sidelines they may find the application of the proposed regulations more adversely affects them than the application of the current regulations.
Parvin is a shareholder in the law firm of Jenkens & Gilchrist, which has offices in Austin, Dallas, Houston, and San Antonio, Texas, Washington, D.C., and Los Angeles.
